Many are sidestepping the legal requirements for accurate disclosures of fees and settlement charges by using 'work sheets' and 'loan scenario' forms.

Reporting from Washington — The federal government's efforts to eliminate settlement cost surprises for home mortgage applicants may have opened the door to a new -- and potentially costly -- set of consumer problems.

Under the regulations issued by the Department of Housing and Urban Development, the estimates that lenders provide upfront must be accurate -- the same or nearly the same as the fees that are later charged at closing.

The idea is to eliminate some of the most controversial practices in home mortgages -- the intentional or inadvertent underestimation of fees. Under the old system, some lenders lowballed their estimates to lure applicants away from competitors.

The net effect was to hit unwary consumers with eleventh-hour surprises at closings -- fees that sometimes were thousands of dollars higher than the estimates.

In the past, no federal rule penalized these lowball numbers, leaving shellshocked borrowers to pay the difference. Loan officers and others who provided the low estimates were not held responsible.

As of the new year, this was all supposed to change. The reformed good faith estimate, or GFE, requires lender-related fees to be identical -- from application to closing -- and allows just a 10% tolerance, or wiggle room, for estimates in other areas such as title insurance and closing fees.

When the charges at settlement exceed the estimates, the lender -- not the customer -- must eat the difference.

The new GFE also is designed to facilitate comparison-shopping on fees and other loan terms. It contains boxes allowing consumers to compare as many as four lenders' quotes and estimates, each essentially guaranteed to be accurate at closing.

Consumer groups applauded the new rules. Banking and mortgage industry groups complained that the Jan. 1 start date was too early for them to master the complexities.

So how have the first two weeks of the reforms been going? Not exactly as planned. Many loan officers and lending institutions are sidestepping the new, price-bound GFE by giving shoppers "work sheets" and "loan scenario" forms that come with no legal requirements for accuracy, and were not even contemplated under the reforms.

In effect they are substitutes for the new GFEs but, in the wrong hands, they are open to lowballing and bait-and-switch games.

The work sheets purport to contain much of the information provided by a GFE. Typically they are issued only when shoppers do not provide -- or are asked not to provide -- key information that constitutes an "application" under HUD's definition in the rules.

For example, if a consumer does not provide the address of the property to be financed, there is no application and therefore no requirement to issue a tolerance-bound GFE.

Loan officers defend the work sheets as necessary adaptations to HUD's get-tough regulations on costs. They contend that HUD is forcing them to provide hard-and-fast estimates on services or charges that they cannot always know with accuracy -- especially those involving title and settlement services.

"We can't be 100% certain on every cost that HUD is asking us to be certain about," said Steve Stamets, a loan officer for Union Mortgage Group Inc. in Rockville, Md.

"So when there is no full application, or you've got people just shopping around, we can help them" with the work sheet estimate.

Tom Balk, a senior loan consultant for Mortgage California Inc. in Alamo, Calif., says the work sheets enable him to give clients "an accurate sense of the fees they'd pay if they move ahead to a full application," at which point he'd be able to issue an official GFE.

Asked for HUD's position on all this, Vicki Bott, the agency's deputy assistant secretary for single-family housing, said that although the reform rules were silent on the subject of work sheets, such forms "can be a useful tool when the consumer doesn't want to give enough information" to constitute a formal application.

However, Bott said, if work sheets are becoming commonplace and threaten to water down the consumer protections on settlement fees provided by the GFE reforms, her agency will need to take a thorough look at the situation and possibly issue "updated guidelines" to lenders.

Bottom line for loan shoppers in the meantime: If you want hard-and-fast guarantees on fee estimates and are serious about comparing competing loan costs, demand a GFE. If loan officers will provide only work sheet estimates, be on alert. The lowest quotes you get may not be for real.